tells TOI’s Sidhartha & Surojit Gupta that the government prioritised investment to boost demand and create jobs as a durable strategy.
Budget 2021: Complete coverage
Excerpts from the interview:
Q. What is the overall philosophy of this Budget? Will economic activity return to pre-Covid levels by the end of the year?
• From the third quarter, the government has been pushing capital expenditure. You saw the drastic jump and, with that, we clearly feel that the (economic) rebound is being helped. Therefore, it was clear during consultations that a good amount of public spending, particularly on infrastructure, is one recipe where the multiplier effect is big. And because of the multiplier, the result that you expect is sure shot.
Besides, when you do this instead of delivering money into people’s hands, the quality of expenditure can be monitored. That may be good short and medium-term, but not in the long term. That is why we have taken this call. Everybody said fiscal deficit this year will be 7-7.5%. Look where we have arrived.
We did not hesitate to spend (this year) and did not hesitate to spend on quality projects. We will continue with that. We have announced almost Rs 5.5 lakh crore for capital spending. I have also listed projects where the money is going to be spent. It’s not as if I have declared the amount and didn’t know where to spend it — whether it is power generation, discom improvement, ports and harbours, or roads and railways.
Even during Covid, nearly 217 projects, which were listed in the National Infrastructure Pipeline, have been completed. Records show that we can complete projects. Therefore, the amount that we have declared now is likely to be spent and the multiplier effect will get the economy going back to where it should be after the contraction.
The lesson we learnt from Covid is that infrastructure for health need not and should not be seen simply as number of hospitals. Critical care hospitals are crucial. We are building national institutions such as AIIMS. But critical care at district level and testing labs, should be available too. Do we have the capacity to deal with more unexpected pandemics?
Health-related capex is for block, urban body, panchayat level and state levels. We then need to build up. We have a blueprint, which we have launched. These two are the major areas where money is going. Because we have given a call for doubling farmers’ income, farmer-related activities and infrastructure is a priority. I have already announced Rs 1 lakh crore. The cess that we have introduced, without burdening consumers or importers, will help us provide funds for infrastructure. In fact, a large part of this will go to the states. We expect these three to be main roads to recovery. They have the ability to give us the necessary multiplier.
Budget 2021: Cheaper & Dearer
Q. The other big theme is privatisation. There are areas which people did not want to tread.
Was it a difficult decision against the backdrop of protests against farm laws?
• This is not the first time we are talking about privatisation in these areas. Even when we announced the amalgamation of banks, it was apparent that public sector banks lacked scale. They are unable to draw synergy from current account and savings accounts (CASA). So, the amalgamation of banks was both for scale and for the fact that money lies somewhere, while demand for money is higher somewhere else. These factors made us realise that the financial sector solutions cannot be one or two, you need many more. Also, when you go on infusing equity in banks for growth or for making provisions, you realise that it may sometimes be like a black hole. Many of them (banks) have already lost 80-85% of their asset value due to provisioning (for bad debt). If that is the kind of hair cut banks have to take, how long is it possible to go on infusing cash into them?
So, from among the banks, we want many more State Bank like banks – large banks that can utilise resources available through deposits in a far more energetic way. But some of them are in a very worrisome state and a call has to be taken on how to keep funding them and not see light at the end of the tunnel. After all, I am dealing with taxpayers’ money. How long can I go on putting money which fails to perform?
Q. Was the opposition to agriculture reforms a deterrent? After all, privatisation has a ring of political incorrectness to it.
• If that was a big enough deterrent, we wouldn’t have been able to announce it today. Those make a part of your discussion, but they are not deterrent enough to stop me from not doing it.
Q. Will you privatise banks that have been amalgamated or will it be the banks which have not been taken for the merger?
• I need to make a lot of legislative changes. It is not going to be straightforward like A bank go, B bank sell it off. I will have to work out the prospects and find out who (which bank) is in that position, which is not promising and then take a call.
Q. The fear is that over time government will exit the space.
• Why should there be a fear? Haven’t we said minimum government, maximum governance? In several places, we have asked why we are continuing in businesses where government doesn’t have the wherewithal to run the businesses? A classic example is Air India. How long have we had this dilemma, the dharma sankat? Did it benefit us? It drained your resources even further and at the end of the day you are selling it because, over the years, you have accumulated huge amount of debt. I am also responsible to answer in Parliament as to how effectively I am using taxpayers’ money. I can’t be saying — ‘Oh God, this has been there for years and I have to keep funding it. Don’t question me even if it is unproductive’. There should be some line drawn.
Q. You are relying on disinvestment to get you the funds to drive growth. How confident are you of going ahead with it?
• The government can announce with good intention. This is what we did in the July 2019 Budget. Then there was the slowdown in the economy. Does it question my intention? No. At the same time I cannot throw it away for any price as I have announced in the Budget. You can’t do that either. Now, the market is showing signs of being positive and the government’s commitment and will are clear. I am confident that we will be able to go ahead.
Q. You spoke of development financial institution. Will it be one DFI or will you merge IIFCL & IFCI?
• We are looking at an institution, to use the corpus to raise more money from the market. At the stage of conception, we are saying that even private DFI can come in. The challenge of financing India’s development needs cannot be met by just one institution. It has to run professionally and compete with the market. Through the law I am also getting a place for the private sector. I can facilitate them. There will be a competition. That I hope will be a good way of giving good, well-priced long-term credit for developmental activities.
Q. Fiscal conservatism has been an important factor with most governments. When did you take the call that it is okay to spend?
• You would have seen from the Atmanirbhar Bharat announcements that we are unhesitatingly going ahead with spending. But we decided that the design of the spending will be qualitatively good, and it will have the desired multiplier effect. We are not getting tempted by laid back approaches — do this and once you do this you are a good government. The government will have to be responsible in spending money. During the pandemic, we did not give big sums. We gave small sums to people who desperately needed them. Even they conserved the money and I won’t blame them as uncertainties weighed on their minds. What if I give money and it doesn’t get spent? Does it give me the desired impact? That is why we have chosen a different route through public expenditure.
Q. You have assumed over 10% GDP growth, 14% nominal growth. Is there a plan B if things don’t go on this trajectory?
• It’s too early to think of this. I am looking at positive outcomes. The government is never without a plan B. But this is not the time for it. If all kegs in the wheel work, it does yield result. Look at GST. I do not know if I can sustain it, but I will reach that stage where approximately this is the amount which is going to come every month.
Q. How much did you focus on transparency of accounts? Some subsidies are budgeted lower. Is it because of the clean up?
• It was intended that the government’s book of accounts should be clean. It was intended that all the pushing-under-thecarpet should stop. It should be an open book. You noticed that between July 2019 and February 2020, even the IGST money put into the consolidated fund, I insisted on methodologies to take the money out of the consolidated fund, and seek permission of Parliament and then transfer it to the states. I have relentlessly followed the principle that the government of India’s account should be an open and fair book. It should be what it says. This time we have tried to do so. We have not hidden anything. I want that confidence in the public.
Q. A new tax provision has been brought in on provident fund. Is there an assessment of how many people will be covered?
• It is less than 1%. There are only a few who will be impacted. But there are people who contribute Rs 1 crore a month as their own contribution. He gets tax exemption. He gets interest at 8%. Is he a worker?
Q. The Finance Commission has proposed a non-lapsable fund for defence and internal security modernisation in the Finance Commission report. What is the plan there since you have accepted it in-principle?
• The formulation needs to be worked out. This is the first time that the government has considered something like this. We will have to consider how long is non-lapsable and what are the ways in which we can sustain the non-lapsable fund. It has questions related to audit. CAG can ask how this can be kept like this. There are a lot of government rules that have to be understood. We have to work out the formulation.
Q. On the jobs front, how soon do you see a recovery?
• I have already announced payment of PF by government for two years if employees are taken back. The Indian flag ships will generate over two lakh jobs. Getting more countries to send ships to Alang is a massive exercise and is very labour intensive. Then, we have announced seven mega textile parks. Skilling people to get jobs abroad will help. We have agreements with three countries for specific skills that they need.
Q. There were expectations of a cess. Did you consider it?
• It was never considered. I was surprised media kept saying it. No raising of tax, no raising of cesses. Not a single paisa new tax.
Q. What was the PM’s message when work on the Budget began?
• What he said when Parliament started was that we have continuously worked (on several decisions) and the Budget is part of that process. Give more and more. Every recommendation was worked through and I sat through these meetings. I wrote the speech myself.